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Can New Jersey Keep Its Rich Taxpayers From Fleeing?

“Does it make economic sense to move out of New Jersey?” That’s the troubling repeat question from clients that led David Bugen, head of the wealth management firm RegentAtlantic in Morristown, N.J., to commission a study: “Exodus on the Parkway: Are Taxes Driving Wealthy Residents out of New Jersey?”

“We were selfish,” Bugen says. “We wanted to make sure we can keep our clients and be responsive to their needs.” But beyond his firm’s interest (it has $3 billion in client assets under management), he hopes his research will open a serious dialogue regarding the tax climate in New Jersey.

His team found support for two significant trends: working millionaires leaving New Jersey for Pennsylvania, and rich Jersey guys and gals heading to Florida to retire.

The calculus for high earners moving to Pennsylvania is straightforward. New Jersey’s top income tax rate is 8.97%; Pennsylvania’s levy is a flat 3.07%. A reciprocal tax agreement (enacted when the states’ taxes were nearly the same) says that if you live in Pennsylvania and work in New Jersey you pay the Pennsylvania tax. “Major executives at large corporations based in New Jersey like Johnson & JohnsonJohnson & Johnson and MerckMerck live in Pennsylvania to save a tremendous amount in income tax,” Bugen says. Discussion point: repeal the reciprocal tax agreement.

Florida’s big draw for retirees is that it is a no income-tax state. It also has no death tax. New Jersey’s estate and inheritance taxes are a sore point for wealthy retirees. New Jersey has the lowest estate tax exemption—at $675,000–of all the states that impose death taxes. Even high-tax neighboring New York has a $1 million exemption, and Gov. Andrew Cuomo has proposed increasing it to match the federal exemption, currently $5.34 million. Discussion point: increase the state estate tax exemption.

When he talks to clients about the big move, Bugen says they fall into two camps. For people who have transferred to New Jersey, say to work on Wall Street for 15 years, it’s easy for them to pick up and move because they don’t have the emotional and family ties to the state.

For people who have grown up in Jersey, it’s a harder decision. One client is ready to move to Florida, but his wife is involved in the local emergency rescue squad and doesn’t want to give it up. When the couple sit down with Bugen, client to advisor but also friend to friend, they talk about how they could leave more money to their kids and grandkids if they left. “The world is based on incentives,” Bugen says he tells them.

Bugen, 65, can relate to the conflicted group. He grew up in Belvidere, N.J., went to college at Rutgers, and lives in New Vernon (he also has a shore house in Spring Lake). He’s planning to retire at the end of 2015, and he and his wife intend to stay put in the Garden State for the time being to be near family—his mother-in-law and his two daughters live in New Jersey. “We love New Jersey; that’s why we’re emotional about the topic,” he says, but he says that moving out of state one day is a possibility (he owns land in South Carolina).

Of the 540 clients surveyed, the largest concern was the state’s high property taxes, then estate taxes, then income taxes. Discussion point: consolidate municipalities to help lower property taxes.

There are other peculiarities to New Jersey that hit the wealthy hard: not allowing residents to deduct their charitable gifts on their state income tax returns, and not allowing residents to carry forward previously realized capital losses to offset capital gains.

Paying more to the state than the federal government at tax time because of the inability to carry forward losses in New Jersey pushed one RegentAtlantic client quoted in the study to move: “That’s what broke my back, and I said, ‘That’s it. I’m getting out of the state.’”

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High taxes have been killing NJ for years. That’s why unemployment is high and long-time residents keep moving out. But Gov. Christie has never been able to get the Democrats who control the legislature to do anything about it. In fact, the Dems keep pushing to raise the top income tax rate. Maybe now that Bridgegate is fading since nothing came up that connected Christie to it, the governor can focus on cutting taxes and spurring some economic growth. If not he’s not going to have much of a record to run on for president when facing the Scott Walkers and Bobby Jindals.

It was a “natural” disaster, the Dust Bowl, that caused my Oklahomans to pack all of their belongings into horse-drawn wagons and head for California. A man-made disaster, state taxes, could drive residents of New Jersey to pack up all of their belongings and head off to Florida

It is the migration of high income tax payers (8.97%) that is the problem for NJ. This has been a problem for years. Overall population density is not relevant. The state depends on a small percentage of its citizens for most of the income tax receipts and those people have been leaving.

I know that it is fun to say “go ahead and leave” but that isn’t going to fix the problem.

The state is too dependent on a small percentage of taxpayers and those people are leaving the state. The state has struggled to manage its budget for years and can’t lower these taxes without finding the money somewhere else.

do you have anything to reference showing that the population of 8.97% tax payers has decreased? Also, it’s a progressive tax, they pay an effective rate lower than 8.97% since income brackets are graduated. I don’t see all of thw towns on the “Gold Coast” complaining about struggling to fill all the massive buildings that are springing up.

New Jersey is never going to control costs until it consolidates governments. It has 565 towns and 603 school districts — no wonder taxes are insanely high It should look at complete reorganization, probably county government, maybe with some new and some consolidates counties. Of course, all the politicians have built their lives on the local home bases, so it would require a popular uprising…

It’s also got 8 million residents. So that’s 13,266 residents per school district. 14,159 per town. If you consolidate every essex county town into one, does that mean you need less firemen? less policemen? less garbage collectors? less plows? less rock salt? You’re talking about cutting a handful of upper level jobs, but you’d still need an appropriate numbers of managers to workers. I’m not saying there’s zero waste, but the savings people point to with consolidation is grossly exaggerated.

Name some specifics, with actual examples, if you truly believe this is NJ’s problem.

Has the population in NJ been decreasing? Are there a ton of homes in Alpine and Short Hills sitting vacant? How about Hoboken, did that stop growing? 50,000+ in one square mile. Jersey City waterfront area doesn’t seem to be struggling. Retirees in NY and NJ have always been moving to Florida. Where did the term “snowbirds” come from? Recent years?

Chris Christie has been nothing but empty promises. Sure, cap property taxes. But what does a town do when it needs to pay for something? It institutes a user fee. How much does it cost to register a car in “low tax” Florida? How about all those HOA communities (virtually all of Florida)? What is that cost? You still need your garbage picked up, whether you pay your town to do it or a private company. No?